The allure of homeownership

Question: My husband and I are both church pastors. We have been married for a year and half and we both work full time. Our gross income is about $84,000 and we tithe 10 percent to our churches and charities, which we will continue to do. We are trying to decide whether or not to purchase a home, and whether we are saving money in the proper places.

We are planning to stay in our current jobs for several more years, which would keep us in the suburbs of Detroit, MI. Currently, we are renting a home at a deeply discounted rate, which allows us more flexibility with our finances. Right now, we put 10% of our monthly income into savings and about $500 per month, total, into our Roth IRAs. Our regular savings total about $55,000, which includes our emergency funds and money that could go for a down payment on a house. Both of our jobs include a full pension.

Is this a good time to buy a home? What if we needed to sell it in four years? Should we be putting less money into savings and more into the Roth IRA's? Thank you for your help! Emma, Beverly Hills, MI

Answer: Before I get to your question, I’m glad to learn that you’re tithing. When I went on a book tour for The New Frugality in 2010 a number of ideas were particularly well received. Among them were the concept that green is frugal and frugal is green; the argument that frugality is the opposite of cheapness; and the notion of putting charitable giving at the core of managing money.

What I didn’t expect is how many questions I got about tithing. According to American Heritage dictionary, the word is from the old English word for tenth, teotha. It has come to mean committing to giving a tenth--like you do--or some other percentage of household income every year. In the back-and-forth with people in the audience I learned that there were a number of factors behind the appeal of tithing. For some, the urge came from a desire to better align finances and faith, while for others it was more a discipline for matching spending and community values. A number of people worried that an abrupt transition to a tenth of income was impractical. They were going to try establishing a smaller percentage of income first, see how it went, and hopefully increase the amount with time. At a particularly bleak moment in our economy I found the discussions heartening.

My best guesstimate is that the housing market will hit bottom in 2012. (I thought so last year, by the way. I was early.) Yes, the housing market is still struggling to climb out of its depression, hobbled by falling prices, foreclosures, short sales, and negative equity. Yet it’s striking how the pall enveloping the market is masking a number of important signals suggesting bottom is near. This doesn’t mean speculative plungers will be rewarded and that prices are poised to come roaring back. There’s no reason to rush.

Still, the economy is getting better and the unemployment is down. There hasn’t been much of an increase in the supply of new homes. The various government settlements with the banks will help. Rents are getting more expensive. In general, I don’t think owning is a mistake. The real lesson of the past few years is to keep household finances conservative.

Here are some key guidelines for weighing the costs and benefits of homeownership:

Compare the cost of owning vs. renting.

Buy only if the deal is financially conservative.

Keep the financing simple.

Smaller is both financially smart and socially sustainable.

Be sure you can stay in the home for at least 5 years.

In running down this list, your question raises two main concerns to think through. The first is the length of time you'll be in the home. Four years isn't all that long from now. While I think the housing market will revive this year, prices could simply stabilize rather than go up for a considerable period of time. How likely is it that you'll move in 4 years? There is the risk that you won’t be able to sell the home when it’s time for you to go elsewhere.

The other major issue is giving up the financial flexibility you now enjoy while renting at a good price. You have savings and it provides with a lot of freedom and flexibility. You’re doing really well on that front and I like your approach to savings. You keep savings like you're doing now and in several years you'll have a substantial margin of financial safety.

Of course, a home isn’t just an investment. It’s also a lifestyle. "This is the true nature of home," said 19th century art critic John Ruskin. "It is the place of Peace; the shelter, not only from injury, but from all terror, doubt, and division."

I would just make sure that if you decide for the lifestyle of homeownership that it doesn't turn into financial stress in a few years from now. I think you're asking the right question.

Chris Farrell is economics editor of Marketplace Money, a nationally syndicated one-hour weekly personal finance show produced by American Public Media. Chris is also economics correspondent for Marketplace, the largest business program in broadcasting and chief economics correspondent for...